Barrick Gold sells three Australian assets for $300 mn

23 Aug 2013

The world's biggest gold miner, Canada's Barrick Gold Corp, yesterday agreed to sell its three gold mines in Western Australia to South-African rival Gold Fields Ltd for $300 million to boost the company's cash flow and focus on more profitable operations.

The mines earmarked for sale, the Yilgarn South assets, primarily consist of the Granny Smith, Lawlers and Darlot mines.

"The agreement to divest Yilgarn South demonstrates further progress as we work to optimise the company's portfolio and maximise free cash flow in line with our disciplined approach to capital allocation," Barrick's president and CEO Jamie Sokalsky said in a statement.

Yilgarn South accounts for about 5-6 per cent of Barrick's gold production and 2 per cent of its reserves. It produced 452,000 ounces of gold in 2012, at a cost of $1,137 per ounce. During the first half of the current year the mines produced 196,000 ounces, at a cost of $1,145 per ounce.

The transaction is expected to close on 1 October, subject to customary closing conditions, including approval by Australia's Foreign Investment Review Board (FIRB).

Under the terms, Gold Fields will have the option to give half of the consideration in its own shares to Barrick.

Proceeds will be used for general corporate purposes, including debt repayment, and will be recorded in the fourth quarter of 2013, Barrick said.

Barrick maintains its 2013 gold production guidance of 7.0-7.4 million ounces at AISC of $900-$975 per ounce, which are the lowest costs of its senior peer group.

The news about the possible sale of the Yilgarn South had surfaced earlier in April. (See: Barrick Gold to sell three Australian mines)

Toronto-based Barrick is the world's largest gold mining company with four business units located in Australia, Africa, North America and South America. The company also has investments in copper mines in Zambia and Chile.

In the second quarter, Barrick reported a net loss of $8.6 billion, resulting from a massive $8.7 billion write-down driven by sharp decline in metal prices. The total charges consist of $5.1 billion for the Pascua-Lama project in Chile, $2.3 billion in goodwill impairments and $1.3 billion in other asset impairment charges.

Previously, in Q4 of 2012, the miner had taken a massive write-down of $4.2 billion on its Zambian copper mine.

Gold prices have fallen around 23 per cent from their October high of $1784 an ounce to $1375 yesterday in London.

Barrick's revenue for the second quarter was more or less stable at around $3.2 billion compared to a year ago.

Excluding one-off items, adjusted net earnings for the quarter was 66 cents, down 20 per cent compared to last year's 82 cents.

The company has been taking steps to decrease operating costs by reducing capital spending and resorting to job cuts. It has reduced 2013 capital guidance by around $1.2 billion to $4.5-5.0 billion, from $5.7-6.3 billion earlier.

Barrick has maintained its 2013 production guidance at 7.0-7.4 million ounces and will strive to reduce the operating cost to $900-975 per tonne from $1000-1100 per tonne anticipated earlier.

According to some analysts, disposal of the higher-cost mines will allow Barrick to reduce its operating costs and focus more on other assets.

In July, the gold miner agreed to sell its energy subsidiary Barrick Energy Inc for around $432 million as part of its strategy to divest non-core assets and generate cash.

Johannesburg-based Gold Fields is one of the world's largest gold miners with operations in South Africa, Ghana, Australia and Peru.

UBS Securities Canada Inc. and BofA Merrill Lynch are acting as financial advisors to Barrick with respect to the transaction.